It is pretty much consensus now that 2009 will be a zero growth year for the world economy (something that you forecast well in advance). It seems that the major risk for the following years is having a lost decade of Japanese-style stagnation but on a worldwide basis. How are the governments in US and Europe faring so far in their effort to avoid that?
Marco, Sao Paulo
Nouriel Roubini: To avoid a Japanese style multi-year L-shaped near-depression or stag-deflation (a deadly combination of stagnation, recession and deflation) the appropriate, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies) is necessary.
The eurozone is well behind the US in its efforts as: a) the ECB is behind the curve in cutting policy rates and creating non-traditional facilities to deal with the liquidity and credit crunch; b) the fiscal stimulus is too modest as those who can afford it (Germany) are lukewarm about it and those who need it the most (Spain, Portugal, Greece, Italy) can least afford it as they already have large budget deficits; c) there is lack of cross-border burden sharing of the fiscal costs of bailing out financial institutions.
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